WeWork ups broker commissions to lure new tenants

WeWork ups broker commissions to lure new tenants

31 August 2018

Office co-sharing giant WeWork is offering commercial real estate brokers worldwide a 100 per cent commission on the first year of rent paid by any tenant who switches to WeWork from a top competitor, reports the AFR.

Tenants also get half off the first year’s rent if they sign for at least 12 months. That means, accounting for the discount, that WeWork’s current bonus to brokers is five times the standard commission it typically offers of 10 per cent on the first year’s rent.

To qualify for the bonus, however, the lease with WeWork has to be signed by October 1.

The company’s promotional offering comes during the summer season, when business tends to slow.

WeWork didn’t specify which coworking competitors’ brokers would have to poach from to receive the hefty commission, but Knotel, IWG Plc, and Industrious are on the list, says Bloomberg.

The move comes amid a flurry of initiatives by the coworking giant to lure new tenants, either via brokers or more directly.

Last September, WeWork made a show of trying to poach customers from rival co-working companies during the slower months of late summer and early fall.

Employees of the co-working giant cold-called competitors’ tenants, set up games and couches outside of other shared-office spaces, and offered up to a year’s free rent if they switched over.

“A year ago WeWork had some of their staff coming to our locations unannounced, posing as prospective customers, taking a tour, walking around, taking pictures of logos of companies they saw, then emailing and calling them directly and offering them discounts,” said Amol Sarva, chief executive officer of Knotel Inc., a WeWork competitor that offers businesses flexible work spaces similar to co-working services.

The company is presumably able to fund these initiatives because of recent influxes of investor capital, particularly from Japanese investor SoftBank.

Using venture capital funds to kneecap competitors is a common strategy in Silicon Valley, and real estate providers often lure tenants and brokers with discounts and bonuses.

But the new program suggests WeWork is strengthening its relationship with brokers and also raises questions about its ability to keep its buildings full as it continues to expand at eye-watering speed.

At the end of last year, 82 per cent of WeWork’s office space was occupied, according to bond offering documents reviewed by Bloomberg.

As it adds locations around the globe (it’s on the brink of becoming the largest corporate tenant in Manhattan), the start-up often offers discounts to “assist in driving initial occupancy levels”, which made its average revenue per member drop more than 6 per cent last year, according to the document. Its overall sales and marketing costs, meanwhile, rose from $US43 million to $US143 in 2017.

As it’s grown, WeWork has come to rely more on real estate brokerages. WeWork started an official broker commission program about two years ago, the company said, and in March started doubling commission rates for brokers from top firms CBRE Group, Cushman & Wakefield and Jones Lang LaSalle.

“But I think if you look at the behaviour and what their stated plans are, probably the most accurate description is they have a short-term plan with regard to brokers, which is to use them where possible to their advantage, and a long-term plan, which is probably to erase the entire industry.”

WeWork has recently expanded its presence across Melbourne and Sydney and is said to be looking to expand to Geelong as the demand for more flexible working space gains significant traction in a tight sector.